Federal Reserve infighting, economy worsens
Some FOMC members see a recession as likely after recent banking turmoil. Others see stubborn inflation. What does the market see?
Dear readers,
As bitcoin’s price holds above $30,000, we analyze the economic data received this week and interpret the Fed acknowledging a recession is coming. And while hyperinflation, death of the dollar, and Powell attempting to crush European banks and the Eurodollar system are all entertaining narratives to explore, at The Bitcoin Layer we must sift through the noise to do what we do best—give you a medium-term outlook on the business cycle, the monetary policy, and how it all affects bitcoin. Right now, the market is sending a message, and we’re here to translate it for you.
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Today’s topics
Jobless claims are rising, indicating a weakening labor market.
CPI has fallen from 9% to 5%—hyperinflation scares have faded entirely.
PPI has collapsed and now sits below 3%, annually.
FOMC minutes showed a willingness to admit that hikes will bring about a recession this year. Retail sales tomorrow should give us a better sense.
2-year yields remain below 4% as the entire Treasury curve remains in a bull market.
Bitcoin price action has been very impressive amidst this “Fed pause” rally.
QT versus S&P 500—not well understood, but what we believe will be the most important markets battle we’ll experience in 2023.
Labor market
We all know that the unemployment level is extremely low, and something the Fed has touted as this hiking cycle continued. A low unemployment rate, while a sign of a strong labor market, is a very lagging indicator, corrected by more frequent and real-time employment metrics, such as the subcomponents of PMI and ISM readings and weekly unemployment claims. Now, we are starting to see unemployment claims tick higher, and an enormous spike in California specifically. I fully anticipate this data series to continue higher as more people face the harsh realities of a slowing economy and falling labor demand, as evidenced by last week’s JOLTS print. The unemployment rate and non-farm payroll numbers we receive once a month should pick up on this data soon, but we certainly do not need it to confirm what we already know: the labor market is turning.